IIFCL’s tax-free bond issue opens on Thursday

K. R. Srivats Updated - March 12, 2018 at 04:26 PM.

Retail investors looking to park surplus funds in long-term high-return yielding debt instruments have cause for cheer.

State-owned India Infrastructure Finance Company Ltd (IIFCL) will on Thursday launch a public issue of tax-free bonds that could help mobilise as much as Rs 2,500 crore. These bonds will come with tenures of 10, 15 and 20 years.

The IIFCL issue, which will remain open during October 3-31, is the third public issue of tax-free bonds this financial year.

Rural Electrification Corporation (REC) has already mobilised Rs 3,500 crore through such bonds. The other issuer, HUDCO, whose tax-free bond offering is currently open, is looking to garner Rs 4,809 crore.

The Central Board of Direct Taxes had, in August, allowed IIFCL to raise tax-free bonds of up to Rs 10,000 crore this fiscal. Of this, IIFCL has already raised Rs 2,963.20 crore through the private placement route.

The maximum issue size of IIFCL’s first tranche of tax-free bonds this fiscal will be Rs 2,500 crore (Rs 500 crore along with a green shoe option of Rs 2,000 crore).

The bonds offered to retail investors will be tradable in the capital market and will have no lock-in period.

IIFCL OR HUDCO

Purely from the coupon rate point of view, retail investors in IIFCL bonds may get a better deal if they were to opt for the 20-year option. This, since the interest rate offered for this tenure by IIFCL is marginally higher than that by HUDCO.

But the coupon rates offered by IIFCL for the 10- and 15-year bonds are lower than those of HUDCO for the respective periods.

The credit rating of IIFCL bonds is also seen to be better at AAA, compared with AA+ of the HUDCO bonds. This, despite both being highly rated and practically risk-free.

The investment horizon of the investor will be the major influencing factor in making the right choice, say analysts.

>srivats.kr@thehindu.co.in

Published on October 2, 2013 16:55